Policy
Petrol, Diesel No Longer Politically Sensitive Products In India?
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BPCL Selloff Facing Uncertainty? Conflicting Signals
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National Monetisation Pipeline Project Kicks Off
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India Seeks To Promote Use Of LNG By The Transport Sector
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Recovery Of Fuel Consumption Slows Down In September
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Regulation
Gas Price Hike Lands CGD Companiesí Margin Under Pressure
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After RIL-BP, ONGC Too Raises Domestic Gas Production
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Import-Dependent PUMY Exceeds Target, Govt. Excited
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How India Handled Exploration Acreage Rounds: A Brief Report
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Alternative Energy / Fuel
NTPC Renewable Energy Inks Pact To Sell Power From 150 Mw Solar Project
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New Projects
Mcdermott Wins Fourth Contract In India This Year
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Linde India To Set Up New Merchant Air Separation Unit At Dahej
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Chemie-Tech Gets Contract For Double Wall Tanks In Rajasthan Refinery Complex
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IOC, CPCL Start Working On Refinery ProjectAt Nagapattinam
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Market Watch
IndianOil Launches Composite LPG Cylinders That Help To Check Gas Levels
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Companies
Dorf Ketal Chemicals
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OILís Aggressive Exploration Strategy As It Becomes Integrated Oil Company
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Manali Petrochemical Partners With Econic For New Polyol Technology
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Rourkela Steel Plant Supplies Special Grade Pipes To Petroleum Companies
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HMEL to Start Bathinda Cracker By March 2022
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Press Release [FREE Access]
Petro Intelligence Ľ When Competition Comes A Cropper

By R. Sasankan

Competition is an over-abused expression in India's tightly regulated market where outcomes are decided more by whimsical policy-making than a free play of market forces. The petroleum sector has had a very chequered history in its long and fruitless quest to find a workable model incorporating the elements of competition and a modicum of free and fair rules of the game. Unfortunately, the hapless consumer of petroleum products has been denied the freedom of choice flowing from the benefits of price and quality that might be expected from an unfettered play of market forces.

The late prime minister, Mrs Indira Gandhi, brought the country’s petroleum sector almost completely within the fiefdom of the public sector. Her son, Rajiv Gandhi, took the first stab at private sector participation in the petroleum industry with the creation of the Mangalore Refineries and Petrochemicals in which the Aditya Birla group became a partner. Later, Reliance Industries and Ruias of the Essar Group were allowed to set up refineries and retail outlets with the aim to encourage competition.

In October 2019, the Modi-led cabinet appeared ready to take a giant leap forward when it decided to privatise the Mumbai-based Bharat Petroleum Corporation Ltd (BPCL). At a press conference, then petroleum minister, Dharmendra Pradhan, said the government was keen to ensure that an international oil major picked up the government's 52.98 per cent stake in BPCL so that the sorely-needed “competition” could be injected into India’s downstream sector.

It was obvious that the government had Aramco of Saudi Arabia in mind. After all, the Saudi oil giant had articulated a desire to enter India’s vast retail market. The pandemic Covid-19 wrecked Aramco’s plans and threw a wrench in the privatisation plan for BPCL. The government has gamely pressed on with its decision to sell of its stake in the public sector refinery. After a long and arduous process, there are three players in the fray for BPCL: the US-based Apollo Global, 1 Square Capital and Vedanta. The first two are US-based private equity companies and the third an Indian company with interest in mining and E&P.

Once again, the government’s dream of fostering competition has been queered. Private equity companies -- whether Indian or foreign -- do not run oil companies and their declared intent is to dismantle the acquired assets and sell them to maximise profits. Such an outcome is politically inconvenient for the Modi government: BPCL is rated as the best-run oil marketing company in the country and shredding it to bits is just an unimaginable and unacceptable outcome for most Indians.

It is now becoming increasingly obvious that the government made a colossal blunder when it decided to bar Indian PSUs from bidding for BPCL. India’s largest oil marketing company, Indian Oil Corporation (IOC), was keen to throw its hat into the ring and made its intentions known in no uncertain terms. In its enthusiasm to rope in a foreign oil major into the country, the government decided to keep IOC out of the bidding process -- overlooking the fact that the mere participation of India's oil behemoth would have prompted foreign companies to ramp up their bids.

With the government deciding to go ahead with the bidding process, it must now pick from one of the three in the fray. Among them, Apollo Global appears to have nudged ahead of the other two. Even as the government is keen to maximise the value of its stake in BPCL, it does not want the company to be carved up and sold -- which makes a lot of sense from the perspective of a private equity player but not for a government that is looking to stoke competition in the sector.

Apollo Global is believed to have given an assurance to the government that BPCL’s status will not be altered for the first four years. It has indicated a price of above Rs 900 billion for the government's stake. Still, it looks politically embarrassing for the government to sell BPCL to a private equity company. It has to also deal with a couple of other regulatory issues arising from BPCL’s stake in Petronet LNG and IGL which cannot be resolved that easily. The Modi government is unlikely to pressure the regulator SEBI to grant a favourable decision.

So, what happens if the privatisation plan hits a gridlock?

One of the most compelling reasons for pursuing an aggressive privatisation process by selling the government's stake in a vast number of public sector companies is the fact that the proceeds will help it trim the mounting fiscal deficit. But this masks the fact that the fiscal deficit isn't such a huge problem as is being made out. The former finance secretary, Dr Vijay Kelkar, can help the government to find a way out as he did in the past with his plan for cross holdings.

The government should enlarge the scope of bidders by including the PSUs which were kept out of the first round of bidding. IOC will definitely toss in its offer. There could be another formidable new player in the revised round -- Gautam Adani who is preparing to enter the petrochemicals sector. But he has one major drawback: he doesn't have a strong raw material base to support his endeavour. That problem can be solved if he acquires a refinery. Neither IOC nor Adani will inject any competition in the downstream market. If the Ambanis and Ruias could not do it, it is going to be a bit of a stretch to imagine that the Adanis will be able to do it.

Competition in petroleum, more particularly in the downstream sector, will remain a dream for the time being. There is nothing wrong in selling BPCL and HPCL to whoever pays the highest price. Even foreign oil companies can acquire them provided we regulate the sector meaningfully. The larger question is whether the petroleum ministry will permit a formidable, independent regulator to function. The present regulatory regime is pretty useless.

Talk of competition without an effective regulator is just a lot of hot air.



To download the latest issue 'Volume 28 Issue 12 - September 25, 2021', click here
Petro Intelligence [FREE Access]
Hardeep Puri Needs To Put The House In Order
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Effective Regulator Needed Before Privatising BPCL
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BPCL Selloff: Foreign Equity Players May Be Fronting For The Big Boys
more...

When Competition Comes A Cropper
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Foreign Investment
TotalEnergies Adds To Renewable Portfolio In India
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Overseas Investment
Reliance Floats UAE Arm For Trading In Oil, Petro Products
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OVL-OIL Exploratory Drilling In Bangladesh
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Dorf Ketal Chemicals To Set Up Downstream Joint Venture In Saudi Arabia
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Gas Scene
Natural Gas Price Trends: Global And Domestic
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Dip In Capacity Utilisation of LNG Terminals
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Sector-Wise Consumption Of Natural Gas
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Domestic Natural Gas Scene in August 2021
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Sector-wise Consumption Of Natural Gas in July 2021
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Domestic Natural Gas Scene In July 2021
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Natural Gas Price Trends: Global And Domestic
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Sectoral Consumption of Natural Gas In June 2021
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Domestic Natural Gas Scene: June 2021
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Sector-Wise, Month-Wise Demand & Consumption of Natural Gas
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Growth In Import Dependency Of Natural Gas Halted
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Natural Gas Price: Global and Domestic
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Sector-Wise Consumption Of Natural Gas In May 2021
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Natural Gas Price Trends : Global And Domestic
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Sector-wise Consumption Of R-LNG, Domestic Gas Since FY 2018-19
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Data Section
Monthly Upstream Data
Monthly Downstream Data
Historical database
Data Archives
Special Database
Global Rig Count Up
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Consumption Of Petroleum Products Registers Impressive Growth In August
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Indian Crude Basket Price In September 2021
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Ethanol Blending Programme
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Product-wise Production and Consumption of Petroleum Products during Apr-Aug 2020 and Apr-Aug 2021
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Gross Refining Margins (GRM) of refineries
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Big Increase In Petroleum Products Import, Marginal Rise In Export In August
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Crude Oil Import Up In August, OPECís Share Declines
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Percentage share of Domestic / Imported Crude Oil processed in PSU/JV and Private Refineries
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Quantity And Value Of Indian Crude Oil Imports (FY 2017-18 to FY 2020-21)
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Specific Energy Consumption Of PSU Refineries
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Weightage of crude oil, natural gas and petroleum products in Wholesale Price Index (WPI)
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Share Of Imported Crude Drops In Oil Processing
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High Sulphur & Low Sulphur crude oil processing
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Profit After Tax (PAT) Of Oil Companies
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Indiaís Rig Count Marginally Up In July
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The Rise And Fall Of Indiaís Petroleum Products Export
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Global Oil Demand Is Poised To Rise
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Global Rig Count Up
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Tenders [FREE Access]
ONGC
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